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How to differentiate between digital currencies and cryptocurrencies?

Redwan Eid | Jul. 23, 2019
How to differentiate between digital currencies and cryptocurrencies?

July 23, 2019 | AtoZ Markets - Many get confused at differentiating between digital currencies and cryptocurrencies, due to the fact that cryptocurrency is something that has emerged the market recently, so in this article we will address the difference between digital currencies and encrypted currencies, or what is known as “cryptocurrency”, and what are the basic differences between the two, encrypted currencies or Cryptocurrencies and digital currencies?

What are digital currencies?

Digital coins are money used on the Internet. It is digital money in the form of numbers. It has no material equivalent in the real world. But digital currencies have all the characteristics of traditional money. Just as local money in any state, you can obtain, transfer or exchange it for other currencies. You can use it to pay for goods and services, such as topping up your phone and Internet accounts, buying online, paying for bills ... Digital currencies have no geographical or political boundaries. Transactions may be sent from anywhere to any point in the world. Digital accounts and portfolios can be considered bank deposits.

Encrypted currencies or Cryptocurrency?

The Encrypted Currency or Cryptocurrencies are a variety of digital currencies but are encrypted with their own system, encrypted currencies or Cryptocurrency is an asset used as a means of exchange. It is reliable because it is based on a complex encrypted system based on cryptography. One of the basic objectives of cryptography is to make communication safe and protected. It creates and analyzes algorithms and protocols that allow encryption of data so that no information is changed how it was, or that it should be read by third parties. Encryption is a combination of a large number of different sciences, so mathematics is defined as the basic process of encryption. Mathematics is responsible for the reliability of encrypted algorithms and protocols.

Encrypted currencies or Cryptocurrencies have a system and a protocol called a blockage or a digitized digital accounting book. This means that no third authority controls all transactions, transfers, and transmissions in the network.

The basic differences between Cryptocurrencies and digital currencies

Although Cryptocurrencies are a type of digital currency, there are some basic differences between the two

  • Structure: Digital currencies are centralized, there are a group of people and computers that regulate the status of transactions in the network. Currencies and Cryptocurrencies are decentralized, based on distributed systems that manage transactions.
  • Decentralised: Digital currencies require user identification. One will need to upload their personal photo, some documents issued by the public authorities, proof of the address, and many other documents and procedures that reveal the identity of the person. Buying, investing in or doing any other cryptocurrency-related operation does not require the same the digital currency needs. However, the encrypted currencies or Cryptocurrencies are not 100% anonymous. Although the addresses of the wallet do not contain any confidential information such as name, address, etc., encrypted currency conversions are handled on the decentralized platform, thus tracking some of the addresses of encrypted currency wallets.
  • Transparency: Digital currencies are not transparent. We cannot track the financial transactions of anyone, and we cannot see the remittances. This information is kept confidential, and only those who operate the exchange on which the transactions take place, can know of.
  • Transaction processing and remittance: Digital currencies have a central authority that handles all transactions and remittance issues. They may cancel or freeze transactions at the request of the participant or authorities or suspected fraud or money laundering. Transactions and transfers in encrypted currencies or Cryptocurrencies are organized through a distributed system of computers called Peers or Nodes in a global network. This network has standardized, special programming (for data processing, remittance, full record of encrypted currency since its start) on all computers, and any change in that programming must be approved by all Peers or Nodes, and it is highly unlikely that users will agree to Changes in that blockchain network.
  • Legal aspects: Most countries have some legal framework for digital currencies, such as EU Directive 2009/110 / EC and Article 4A of the USC. Encrypted currencies can not be said about the same thing at the moment. In most countries, you do not find any status codes for encrypted currencies, and so far the establishment of the legal framework for encrypted currencies is still in progress.

Between encrypted currencies and digital currencies, the difference is: the former is encrypted, decentralized without any central authority and are not dependent on intermediaries for management, whereas digital currency is centralised and digitally traded on the Internet, and its central system is subject to intermediaries.

Disclaimer: The views and opinions expressed in this article are solely those of the author and do not reflect the official policy or position of AtoZ, nor should they be attributed to AtoZMarkets.